On the basis of our culture system for normal human bronchial epithelial (NHBE) cells, an Ad12-SV40-transformed cell line (BEAS- 2B) has been established which is immortal (>100 passages) and partially retains the ability to be induced by serum to undergo squamous differentiation as normal bronchial epithelial cells. Two subclones of BEAS-2B have been isolated and characterized with regard to squamous differentiation ability. One subclone designated as S.6 is sensitive to serum and transforming growth factor (TGF)-beta-1 induced squamous differentiation, and another subclone, R.I, is resistant to these two agents. However, both S.6 and R.I cells are resistant to 12-0-tetradecanoylphorbol-13-acetate (TPA), even though membrane receptors for TGF-beta-1 and TPA are not significantly different from that of normal cells at the number and affinity. A density-dependent affect of squamous differentiation induction for normal and transformed cells has been found. At clonal density (25-500/cm2) cells stop growing and differentiate, but at high cell density (>1OOO/cm2) only part of the population differentiates. Time course of morphology change and DNA synthesis inhibition induced by serum treatment suggest that two cell (pseudo) populations arise in the independent cultures that react to serum in different ways. An epidermal growth factor (EGF) requirement for cell growth that is density- dependent has also been found. EGF is required by clonal growth but is not necessary for high density cell growth (>1 x 104/cm2). Primary data from S.6 cells, conditioned medium has shown that these cells produce a growth factor which is less than 12,000 molecular weight and heat resistant.